Commodities & Metals

Gold ETFs Now Outweigh Almost Every Central Bank in Gold Holdings -- More Than China!

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Is there really gold in them thar hills? If those hills are exchange traded funds (ETFs), then the answer is a resounding yes. 24/7 Wall St. has tracked the gold buying and selling before, during and after the last major bull market in gold. Now the gold bulls in the year 2016 have bought enough equity style trading in gold in ETFs that they own more than all but 4 nations’ central banks and one global agency.

Reports are circulating that the global gold holdings in exchange traded funds have now gone above 2,000 metric tons for the first time in three years. 24/7 Wall St. wanted to look at these on a broken down basis, showing the key ETFs and how they would count if they were a nation.

The gold demand is being driven for multiple reasons. The most recent Brexit fallout has been the top driver of late, but investors and savers also realize that the Federal Reserve just won’t be able to raise interest rates very much (or at all) any time soon. Then there are the negative interest rates all throughout the stable European Union nations and Japan (now over $11 trillion) in their sovereign debt.

The United States still holds the most gold, followed by Germany, the International Monetary Fund (IMF), Italy and France (see table below). Now the global ETF tons passing 2,000 tons was over 10% higher than all the gold held by the People’s Bank of China.

Gold is often considered the ultimate safety trade. ETFs with gold bullion backing have risen to 2,001.4 tons if the Bloomberg data is accurate.

Even in the first quarter, the World Gold Council’s total demand of 1,290 tons (up 21% from a year earlier) was driven by huge inflows into ETFs (some 364 tons), fuelled by concerns around the shifting global economic and financial landscape. If the World Gold Council’s averages were representative to the penny then there was more than $13.8 billion in gold ETF buying in the first quarter alone.

SPDR Gold Shares (NYSEMKT: GLD) was last seen down 0.2% at $129.95 versus a 52-week range of $100.23 to $131.15. The SPDR Gold Shares is the world’s largest gold ETF and has total assets as of July 6 of more than $43.15 billion. That is nearing 1,000 tons by using outside calculations.

The iShares Gold Trust (NYSEMKT: IAU) had net assets of more than $9.36 billion as of July 6. That is roughly 213.2 tons. The iShares Gold Trust was last seen down 0.25% at $13.12, versus a 52-week range of $10.12 to $13.25.

Another key trust tracking the price of gold is the Sprott Physical Gold Trust (NYSEMKT: PHYS). As of June 30 its assets under management were $2.3 billion. Sprott gave some key data (see below) on what is driving demand, and those figures have already changed handily in less than 3 weeks.

Top 20 reported official gold holdings (as at March 2016), according to the World Gold Council, were shown as follows:

  • 1) United States 8,133.5 tons
  • 2) Germany 3,381.0 tons
  • 3) IMF 2,814.0 tons
  • 4) Italy 2,451.8 tons
  • 5) France 2,435.7 tons
  • 5.5) GOLD ETFs (2,001.4 tons)
  • 6) China 1,797.5 tons
  • 7) Russia 1,460.4 tons
  • 8) Switzerland 1,040.0 tons
  • 9) Japan 765.2 tons
  • 10) Netherlands 612.5 tons
  • 11) India 557.7 tons
  • 12) ECB 504.8 tons
  • 13) Turkey 479.3 tons
  • 14) Taiwan 422.7 tons
  • 15) Portugal 382.5 tons
  • 16) Saudi Arabia 322.9 tons
  • 17) United Kingdom 310.3 tons
  • 18) Lebanon 286.8 tons
  • 19) Spain 281.6 tons
  • 20) Austria 280.0 tons

Back on June 15, 2016, Sprott identified 6 factors impacting the global gold market demand. Most of these figures have even increased since then:

  • After a 4-year bear market, gold and gold stocks are rallying. What’s behind the rally and is it sustainable? Read our analysis of the 6 factors that favor gold and gold stocks.
  • Negative interest rates have historically been supportive of the price of gold. In Q1 2016, there was $7.9 trillion of negative interest rate-bearing bonds.
  • In response, there has been a significant sentiment shift in favor of gold. ETFs posted significant increase in fund flows, 11.4 million ounces YTD.
  • Historically, in gold bull markets gold equities have outperformed gold bullion. The ratio of gold equities to gold today is less than half of its historical average.
  • During the recent gold bear market, gold companies have reduced their operating costs and capital expenditures. All-in sustaining cash costs have declined by 26%, from $1,265 per oz. in Q3 2012 to $936 per oz. in Q4 in 2015.
  • Despite the rally in 2016, valuations of gold miners relative to the price of gold are at the lowest they’ve been in 15 years. Compared to their gold reserves, miners are 19% cheaper than a year ago.
  • The average 24 month return of gold equities following the market bottom of the last 7 bear markets was 117%.

Whether you think gold is going higher or lower probably depends on a myriad of factor. This is not meant to be a directional call on gold, and you may have noticed that there was no mention of the current price of gold to prove that point. Still, this does show just how much gold is really being held by gold-backed ETFs – with just 3 ETFs holding about $55 billion worth of assets.

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